FTZ’ine October 2021
September 30, 2021
FTZ’ine December 2021
December 1, 2021
Prepare For Air
It was always faster. But it was never cheaper. With the current multiplier on container rates, plus the now customary demurrage and detention charges, on top of new terminal fees just going into effect, it may now be less expensive to ship your merchandise by air than by ocean.
The G-20 meeting in Rome this past weekend confirmed an international deal on corporate income taxes. The 15% minimum tax may not have a direct impact on the FTZ community, but it is a sign of a growing coalition that could add pressure to China.
A more direct impact will be felt by an agreement just before the G-20 meeting started to convert Section 232 tariffs on EU-originating steel and aluminum to tariff rate quotas. Importers should prepare for new data and recordkeeping requirements to establish origin.
Once the President returns from Italy it will be crunch time for both the $1.85T spending bill and the $1T infrastructure bill. While the details of the new tariff-rate quota system must be worked out with Europe, expect most other trade issues to be on DC’s back burner until those bills pass.
The number of ships waiting to unload on the west coast stretched into triple digits last month. New terminal fees instituted to spur action by the steamship lines seem likely to instead flow down directly to importers, adding even more inflationary pressure to American consumer good prices.
Top Story: Biden Administration Reaches Deal With EU on Section 232
World leaders from the 20 largest economies of the world, a group known as the G-20, met in Rome over this past weekend. A key agreement from the gathering was a consensus in principle on a 15% minimum global tax rate for corporations.
From an FTZ perspective, the key development from the trip occurred just before the G-20 gathering, when U.S. and E.U. negotiators reached an agreement to transform the current Section 232 tariffs on steel and aluminum from the EU into tariff rate quotas effective January 1, 2022.
The agreement forestalls the reimposition of E.U. import duties it had put in place against high-profile American industries as a retaliatory move. Those rates had been set to increase on December 1st.
The agreement came as China’s trade surplus with the U.S. rose to a monthly record of $42 billion and the U.S. remained China’s single largest trade partner. The additional tariffs on imports from China seem to have had little impact on these important trade metrics, and just as little on the ability of the United States to elicit new trade concessions from China or even enforce the old ‘Phase 1’ trade deal already negotiated. The G-20 global tax agreement, along with the E.U. agreement on Section 232 will help the Biden Administration align other nations in dealing together with China trade practices.
The arrangement effectively caps steel products “melted and poured” in the EU to 2015-2017 levels before the 25% tariff kicks in, and aluminum products to 2018-2019 levels. The tariff rate quotas for steel cover 54 10-digit HTSUS product categories and will be administered quarterly and changes to quota levels will be made annually based on changes in U.S. steel consumption. The tariff rate quotas for aluminum cover 16 10-digit HTSUS product categories and will be administered semi-annually and changes to quota levels will be made annually based on changes in U.S. aluminum consumption. Imports of derivative articles of steel and aluminum from the EU will not be subject to Section 232 duties.
The deal will allow 3.3 million metric tons of steel and 384 thousand metric tons of aluminum products from the EU to enter the United States duty-free, based on an announcement from USTR and the Department of Commerce. The trade community awaits more details on the specific country allocations and admission/entry summary filing requirements to show the eligibility of steel and aluminum products shipped from the E.U.
The agreement on Section 232 tariffs resolves a bitter stand-off that began three years ago.
"We've reached an agreement with the EU which maintains the 232 tariffs but allows limited volumes of EU steel and aluminum to enter the US territory," Commerce Secretary Gina Raimondo told reporters. "We've also agreed to work together with the EU to use trade tools to fight global excess capacity of steel and aluminum to address carbon intensity, which is a huge milestone in our fight against climate change."
In return, the European Union will drop their proposed 50 percent tariff on U.S. products including Harley-Davidson motorcycles and Kentucky bourbon.
"For far too long, China was routing its cheap steel into the US via Europe and other markets, which drove down prices and made it essentially impossible for the American steel and aluminum industry to compete," Secretary Raimondo said. "And of course, in so doing, hurting the industry, hurting our workers — so today's agreement enables us to allow limited volumes of steel to enter the US tariff-free while still protecting America's steel industry by ensuring that all steel entering the US via Europe is produced entirely in Europe." "Today's announcement delivers on President Biden's vision to turn the page on past disputes and begin a new chapter of enhanced transatlantic relations," US Trade Representative Katherine Tai told reporters. "In addition to the EU, eliminating the retaliatory tariffs against the US," the two parties "have also agreed to suspend the WTO disputes against each other related to the 232 actions." White House national security adviser Jake Sullivan said the tariff agreement removes “one of the largest bilateral irritants in the U.S.-E.U. relationship.”
The American Iron and Steel institute praised Secretary Raimondo and U.S. Trade Representative Katherine Tai for maintaining enough of the tariff to “prevent another steel import surge that would undermine our industry and destroy good paying American jobs.”
The United States Steelworkers also released a statement on Saturday praising the agreement.
“We appreciate the Biden administration’s continued recognition that the American steel industry is critical to our national and economic security," said Kevin Dempsey, president and CEO of the American Iron and Steel Institute in a statement.
Tech Tip: CBP Preparing For Ocean Manifest House Bill Release
In a recent CSMS (CSMS #49759925 - EDI Implementation Guide Updates posted for ACE Import Ocean Manifest House Bill Release capability), CBP published the implementation guide (IG) changes needed for ACE Import Ocean Manifest House Bill Release functionality. Yes, CBP is finally planning to provide capability for release to be tracked at the house bill level for ocean manifests, including processing in bonds and ePTTs at the house bill level not only for air, but for ocean as well.
If you have ever had to track down General Order messages on a shared ocean bill, only to find out everything with your e214 is fine and it was someone else’s goods on the BOL that went to GO, you can appreciate how this will make your life easier.
But if you have never recorded your ocean house bills because, well, CBP didn’t either, you may have some process changes to make for your bonded movements and invoice information. You have some time to figure that out, though. According to the latest ACE Development/Deployment Schedule, the targeted deployment (subject to change) for this release is August 2022.
There are still a lot of open questions about how all of this will work, including when updates to the e214 will be provided to accommodate this functionality. When we know more, we’ll be sure to share. In the meantime, if you have questions or comments on the idea of house bill release, please send them to us at Info@iscm.co.
Congestion Continues To Plague FTZ Supply Chains
Did you have to make your Halloween costume yourself this year? Reconstruct or recycle last year’s? The dearth of costumes in stores highlights one facet of the current supply chain congestion problem. Seasonal merchandise arrives . . . after the season. When those costumes finally arrive, no one will want to send limited driver resources or consume a precious chassis or warehouse rack to drive and then store it for 12 months. November arrivals of 2021 Halloween costumes will then become more cargo everyone is tripping over while trying to get imports flowing properly again.
There does not appear to be an end in sight for the misery importers currently face in getting containers shipped to their U.S. destinations.
Container ships waiting to offload at the Ports of Los Angeles and Long Beach reached well over 60 at various times last month. Overall, there have been a record 100 cargo vessels — including barges, tankers, car carriers and ships that carry bulk goods — anchored and drifting off the coast of southern California.
One retailer, Costco, announced that it has chartered three container ships, each with capacity to carry 800 to 1,000 containers at a time, to move the goods it needs from Asia to its stores.
An administration attempt to push the port’s private terminal operators to work 24/7 has been slow to start because of lackluster interest from importers, trucking firms and the terminal operators.
In fact, the Port of Los Angeles has remained mostly closed between 3 am and 8 am, despite technically being open 24/7. There just aren't enough trucks calling on the port in those hours to make it worth it for the port's privately owned and operated terminals to stay open around the clock.
"We're working with importers, terminals, etc. to get a demand for that [3 am to 8 am] window," said Phillip Sanfield, director of media relations for the Port of Los Angeles. "There's no one single lever to pull."
The two ports handled the equivalent of just over 6 million loaded inbound containers between January and July, according to the Pacific Merchant Shipping Association, an increase of 23% from pre-pandemic levels.
Steve Hennessey, chief operating officer of the Pacific Maritime Association, which represents terminal operators, said extended cargo-handling hours would alleviate congestion only if everyone in the supply chain works nights and weekends. ”If a warehouse is full, you’ve still created another bottleneck,” Mr. Hennessy said. “You have to solve for it every step of the way.”
“The customers can’t get the boxes off the dock because they can’t find [trucking] power, the warehouse is full,” said Craig Grossgart, senior vice president of global ocean for Seko Logistics, an Itasca, Ill.-based freight forwarder.
Dray trucking remains a key issue on the west coast and none of the measures implemented so far seem to address the terminal wait times and need to bobtail that crush already thin profit margins for the short-haul truckers that move significant numbers of containers off the congested docks.
Public and private-sector officials are launching some constructive programs aimed at alleviating critical pain points in the supply chain.
California Gov. Gavin Newsom signed an executive order on Oct. 20 directing state agencies to identify public and privately-owned sites that could be used for short-term storage of containers. The City of Long Beach on Oct. 22 relaxed for 90 days restrictions on stacking containers at off-port facilities, with stacks now allowed to reach four high, up from two high previously. Freight railroads Union Pacific Corp. and BNSF Railway are offering rebates to customers that bring containers to their Los Angeles and Long Beach terminals on weekends, which is aimed at spreading out the flow of boxes.
New Terminal Fees Compound Congestion Problems For Importers
Beware the Ides of November.
A controversial new fee intended to relieve congestion at the Ports of Los Angeles and Long Beach will go into effect at the middle of this month.
The two Southern California Ports will begin charging ocean carriers $100 per container, compounding in $100 increments each day, for containers that sit shipside for nine days or more. For containers moving by rail, shipping lines will be charged if the container has dwelled for six days or more.
For example, a box that sits on the dock awaiting truck carriage for 10 days would cost the ocean carrier $100, another $200 if it is still there on day 11, $300 more on day 12, $400 more on day 13, and another $500 on day 14 for a grand total of $1,500 for a container stranded at a LA or LB terminal for 2 weeks.
The original understanding of the fee was that it applied only to containers for which the ocean carriers were responsible for drayage, also known as ‘door moves’. However the announcement from the Los Angeles Harbor Commission made no such distinction, and the industry is anxiously awaiting clarification from the Ports on this point.
The fee is scheduled to be in place for 90 days. Port of Long Beach Executive Director Mario Cordero said this week that the fee “is not intended as a pass-on cost.” Yet some steamship lines have already communicated plans to pass on any such fines to importers.
The additional fee pits U.S. importers already struggling with historic additional costs, against ocean carriers and terminals, exacerbating the diverging impact that port congestion is having on the supply chain. In addition to time delays, importers are experiencing record-high pricing and fees, while the ocean carriers are reporting record profits.
“The customers can’t get the boxes off the dock because they can’t find [trucking] power, the warehouse is full,” said Craig Grossgart, senior vice president of global ocean for Seko Logistics, an Itasca, Ill.-based freight forwarder.
“We understand the need to push to get the cargo moving,” said Jonathan Gold, vice president for supply chain at the National Retail Federation. “But we are concerned about how the fee is going to be implemented and the fact that it’s going to get passed along.”
Ocean carriers such as German container line Hapag-Lloyd AG say they are still deciding how to interpret the new fee. France’s CMA CGM SA, in a note to customers this week that was reviewed by The Wall Street Journal, called the fee a “government pass-through charge.” Within minutes of the announcement by the twin ports, container lines began sending letters to importers alerting them to be prepared for the new charges, Matt Schrap, CEO of the Harbor Trucking Association, told American Shipper.
“So clearly, they are not just absorbing these costs as a part of doing business to get this cargo out. They are passing these costs on to the beneficial cargo owner, which as we all know goes right into the American consumer’s bottom line,” he said.
In statements the Port Authorities said the fees were determined in consultation with White House, U.S. Department of Transportation and multiple industry participants.
“The supply chain is complex and interconnected, and we welcome initiatives that will enhance the flow of containers through ports and the supply chain as whole. We will need to see what any official action includes in the end, but the information to date does not indicate an approach that can be expected to incentivize cargo owners to pick up their cargo from the ports,” the World Shipping Council, which represents foreign-owned container lines operating in the U.S., said in a statement to American Shipper.
“As described the fee is on the ocean carrier, but the control over when the cargo is to be picked up sits with the cargo recipient. Having the ocean carrier pay more does nothing to encourage the cargo interest to pick up the cargo; therefore, the incentive does not reach the party that needs to come to the port to remove the long-dwelling cargo,” it said.
Schrap said new measures should target empty containers that can’t easily be returned to full terminals because it “would motivate the carriers to send a sweeper ship in to get them out of here” and clear room for loaded imports.
Carriers already charge demurrage to importers that exceed allotted free time for retrieving containers. Avoiding those hefty charges is a priority for cargo owners. They typically try to pickup cargo within one to three days on the expectation that containers will be available at terminals when scheduled and that empty ones can be returned, so how the fines do anything to motivate faster pickups is unclear, Schrap said.
The average demurrage and detention charge has increased by 42% from 2020 to 2021 at the San Pedro Bay ports, according to a July report by Container xChange. Among the biggest carriers operating in Los Angeles, CMA CGM had the highest increase in demurrage and detention charges at 167%, closely followed by Maersk with an increase of 161%. In actual dollars, the hike in fees is costing shippers an additional $1,227 per container, on average. Based on this it is hard to see how another $100 fee paid by importers will spur additional pickups.
Craig Grossgart, senior vice president of ocean for Seko Logistics, called the congestion-mitigation measure “ill-conceived,” much like the recent move to a limited experimental third shift has not had the intended effect of spreading truck transfers to late-night hours.
The FMC is conducting an audit of major carriers to determine if they are using their market power to overcharge shippers on demurrage and detention fees. Business groups say the charges are often unfair because they can’t make reservations to pick up a load or drop an empty container when the terminals are jammed. Under the Port of Los Angeles tariff, free-time storage is four days for international imports. Detention relates to shippers holding containers for too long outside the marine terminals. Ocean carriers are responsible for collecting penalties on behalf of marine terminals, most of which are subsidiaries of the shipping lines themselves.
“It’s not just fixing the ports, that’s one component in a very long supply chain,” explained Awi Federgruen, a production and supply chain management expert and professor at Columbia University Business School in New York.
“Extending the working hours of the ports in California by some 60 hours, and then shaving off 25% of the unloading time will not be the savior of the entire problem. There are several factors that are compounded by each other,” Federgruen, who chairs Columbia Business School’s Decision, Risk and Operations division, told CNBC.
Schrap said that one of his members has 500 empty containers sitting on chassis at its six facilities. Fifteen companies that responded to an informal Harbor Trucking Association survey had a combined 4,251 empties; 86% were on wheeled equipment and the rest were in stacks. One motor carrier has been stuck with empty shipping boxes since Aug. 31 because the terminal won’t accept them, he said.
Add Environmental Disaster To Port Congestion Impact
Add another name to the list of west coast port congestion victims: California wildlife. U.S. Coast Guard investigators believe a 1,200-foot (366-meter) cargo ship awaiting a spot to berth at the Port of Long Beach dragged its anchor in rough seas and pulled an oil pipeline across the seafloor, some time before a leak fouled the Southern California coastline with crude.
A team of federal investigators trying to chase down the cause of the 25,000 gallon spill boarded the Panama-registered MSC DANIT just hours after the massive ship arrived on a recent return to the Port of Long Beach, where the leak was discovered in early October.
The accident, just a few miles off Los Angeles' Huntington Beach fouled beaches, birds, and wetlands and led to temporary closures for cleanup work.
Coast Guard Lt. j.g. Sondra-Kay Kneen said investigators believe the DANIT’s anchor dragged for an unknown distance before striking the 16-inch (40-centimeter) steel pipe during a heavy storm in January.
The impact would have knocked an inch-thick concrete casing off the pipe and pulled it more than 100 feet (30 meters), bending but not breaking the line, Kneen said.
Still undetermined is whether the impact caused the October leak, or if the line was hit by something else at a later date or failed due to a preexisting problem, Kneen said.
“We're still looking at multiple vessels and scenarios,” she said.
ATA Study Forecasts Driver Shortage Growing To 160,000 by 2030
American Trucking Associations’ Chief Economist Bob Costello estimated that, based on driver demographic trends and projected freight growth, the shortage of American truck drivers could surpass 160,000 by 2030.
His recent report estimates that there was a shortage of 61,500 truck drivers before the pandemic, and that that number stands at 80,000-drivers today, a 30% increase and an all-time high for the industry.
“Since we last released an estimate of the shortage, there has been tremendous pressure on the driver pool,” Costello said. “Increased demand for freight, pandemic-related challenges from early retirements, closed driving schools and DMVs, and other pressures are really pushing up demand for drives and subsequently the shortage.”
“A thing to note about the shortage is that before the pandemic, we were adding drivers to the industry – even though we had a shortage, more people were entering the industry,” Costello said. “The issue is that new entrants into the industry didn’t keep up with demand for goods.”
In order to keep up with demand over the next decade, trucking will need to recruit nearly one million new drivers to close the gap caused by the demand for freight, projected retirements and other issues.
“Because there are a number of factors driving the shortage, we have to take a number of different approaches,” Costello said. “The industry is raising pay at five times the historic average, but this isn’t just a pay issue. We have an aging workforce, a workforce that is overwhelmingly male and finding ways to address those issues is key to narrowing the shortage.”
“Companies are doing more and more to address some of the structural lifestyle issues that have traditionally been a challenge for truck drivers,” he said. “So by finding ways to let younger people enter the industry like the Drive-SAFE Act, reaching out to women and minorities, will open this career path – one of the few with a path to a middle class lifestyle that doesn’t require a college degree – we can put a significant dent in the shortage.”
FTZs Prepare For HTS Changes
The U.S. International Trade Commission (ITC), the administrative body responsible for maintenance of the Harmonized Tariff Schedule of the United States (HTSUS) has recommended significant changes to the HTSUS which will take effect on January 1st next year. The changes were made to conform with amendments made to the Harmonized System nomenclature in the World Customs Organization (WCO) Council Recommendation of June 28, 2019.
The modifications to the HTSUS correspond to the same 350 products and product groups that were covered by the WCO Recommendation. Some modifications delete existing HTS headings or HTS subheadings and insert new headings and subheadings in lieu of them.
Where the 10-digit numerical code is changing, even if the description is not, importers will face rejections by CBP if their entry summaries and FTZ admissions do not make the jump to the new nomenclature beginning January 1, 2022. FTZs and other importers should review the pending changes to see which if any of their items will be impacted by the broad changes to product classifications. (more)
In cases in which a modification in the HTSUS would indirectly alter the scope of an existing subheading without modifying its article description, the subheading is renumbered to indicate that its scope has been changed. The WCO Recommendation contains about 350 amendments to the Harmonized System nomenclature relating to a wide range of products and product groups, including flat panel display modules, 3D printers, electronic textiles, drones, smartphones, and electric vehicles.
The U.S. International Trade Commission (ITC) is an independent, nonpartisan, quasi-judicial federal agency that fulfills a range of trade-related mandates for the President and the Congress. The ITC mission is to investigate and make determinations in proceedings involving imports claimed to injure a domestic industry or violate U.S. intellectual property rights; provide independent analysis and information on tariffs, trade and competitiveness; and maintain the U.S. tariff schedule.
The USITC is headed by six Commissioners nominated by the President and confirmed by the U.S. Senate.
FTZ Staff Activity
FTZ Board Activity
- Lam Research Corporation submitted an application for the expansion of FTZ 18F in Livermore, California. MORE
- LUC Urethanes, Inc. received authorization of production activity for wheels, rollers and friction pads for industrial machinery and material conveyance within FTZ 265 in Conroe, Texas. MORE
- Mercedes-Benz U.S. International, Inc. received authorization of production activity for electric motor vehicles and battery assemblies within FTZ 265 in Vance and Woodstock, Alabama. MORE
- Mercedes Benz USA, LLC received approval for subzone status for its facility within FTZ 98G in Vance, Alabama. MORE
- Tesla, Inc. received approval for the expansion of subzone 18G in Lathrop, California. MORE
- Pensacola-Escambia County Promotion & Development Commission received approval for the reorganization and expansion of FTZ 249 under the Alternative Site Framework in Pensacola, Florida. MORE
- Intel Corporation received authorization of production activity for kitting, assembly and packaging of computer electronics within FTZ 281 in Miami, Florida. MORE
- AbbVie Ltd. submitted a notification of proposed production activity for for additional components of pharmaceutical products within FTZ 7 in Barceloneta, Puerto Rico. MORE
- BMW Manufacturing Company, LLC submitted a notification of proposed production activity for additional components of passenger motor vehicles within FTZ 38 in Spartanburg, South Carolina. MORE
Prepare For Air –
It was always faster. But it was never cheaper. With the current multiplier on container rates, plus the now customary demurrage and detention charges, on top of new terminal fees just going into effect, it may now be less expensive to ship your merchandise by air than by ocean.
The G-20 meeting in Rome this past weekend confirmed an international deal on corporate income taxes. The 15% minimum tax may not have a direct impact on the FTZ community, but it is a sign of a growing coalition that could add pressure to China.
A more direct impact will be felt by an agreement just before the G-20 meeting started to convert Section 232 tariffs on EU-originating steel and aluminum to tariff rate quotas. Importers should prepare for new data and recordkeeping requirements to establish origin.
Once the President returns from Italy it will be crunch time for both the $1.75T spending bill and the $1T infrastructure bill. While the details of the new tariff-rate quota system must be worked out with Europe, expect most other trade issues to be on DC’s back burner until those bills pass. The number of ships waiting to unload on the west coast stretched into triple digits last month. New terminal fees instituted to spur action by the steamship lines seem likely to instead flow down directly to importers, adding even more inflationary pressure to American consumer good prices.